Published on November 14th, 2019 | by Michael Barnard0
Only China Has Scaled Manufacturing & Leading Practices For Rapid Low-Carbon Transformation – Part 4
November 14th, 2019 by Michael Barnard
Originally published on Medium.
This is the last in a series of articles detailing the challenges facing rapid transformation to substantial decarbonization by 2030. It was triggered by a scheduled conversation with a wandering marketing guru, Elisha Israel, who had just stepped off a high-speed train in Northern Africa.
He was seeking to understand the barriers facing sustainability entrepreneurs and transformation consultants, hence the reason he was talking with me. The conversation ranged over four major factors I saw as hindrances to rapid transformation.
- Inverted political power with cities at the bottom of governance structures
- Patchwork regulation
- Utilities and transit poorly positioned for transformation
- China being the only scaled manufacturer of many necessary technologies
The first article deals with the challenge that a majority of people, wealth generation, and climate solution requirements are within urban areas, yet urban areas were an afterthought in constitutions. They have limited ability to generate revenue themselves and are subject to interference from two to three levels of government and governance above them as they attempt to achieve carbon neutrality. Short and long term solutions such as declaring climate emergencies, unifying regional power and budgets for fixing problems, and the potential for urban cryptocurrencies were discussed.
The second article deals with the multiplicity of regulatory processes, requirements, incentives and fines at the federal, sub-national, and municipal level than any initiative has to navigate rapidly. Short and long term solutions included approaches for corporations to create intellectual capital from places that are further ahead on the curve and bring it to places moving up the curve, creating an open-source repository of regulations between the US and Canada to optimize for many organizations, and standardization of regulations between larger cities regardless of what city or state they exist in.
The third article deals with the various transformational challenges facing utilities and transit organizations. They are governmental organizations with long-lead times for normal changes and systemic challenges which limit the resources that they have to change rapidly. Solutions included strong governmental support for transformation including budgetary relief and external organizations with transformational skills.
This article deals with a different challenge, that of procuring enough of the right technology for rapid transformation.
One of the experiences I have is in large-scale technology procurement efforts. I pushed through my first multimillion dollar computer procurement order over 20 years ago, have participated in multi-country technology efforts that ranged up into hundreds of millions and have done so in Canada, Latin America, and Asia. There are some observations from that which have held true all over the world, and one of them is that China is often a hard country to buy from for reasons completely unrelated to its products or its willingness to sell. Some of this pertains to purchasing agencies and some of this pertains to North American vendors and unions.
For governmental efforts and highly regulated companies such as transit and utilities, there are often procurement prohibitions against acquiring components from companies based in China and owned by Chinese nationals. As the Huawei cybersecurity issue shows, there is often a concern about the Chinese government insisting on building backdoors into products sold to North America for their own benefit. What this often translates into is a prohibition in procurement processes from sourcing components, with a requirement of a detailed manifest showing country of origin.
Also a challenge for these agencies is an often perceived, sometimes mandated, requirement to buy locally. Major capital initiatives often require funding from multiple levels of government, and that funding often includes visible and not so visible strings related to procurement within the country, and sometimes within the province. Garnering fiscal support for major initiatives often requires ensuring that the fiscal gains are made in country, and regional politics means that work is spread around to places that aren’t necessarily the ones that can successfully do the work. The history of federal ship building contracts in Canada is a string of compromised political decisions, as one example, as is a frequent pressure to purchase from Bombardier or engage SNC Lavalin.
Finally, there are incumbent providers for buses, as one obvious example, which have traditionally provided their products, have relationships, and will lobby hard to be able to supply new demand such as electric buses.
But all of this runs into the reality that in many areas, China is a decade or more ahead of the United States and Canada in technologies critical to transformation. Let’s look at at a few examples.
First off, China is so far ahead of the rest of the world on electric transit buses that the rest of the world can’t even be shown on the same scale. The country has over 430,000 electric buses, has entire major cities which only have electric buses, with Shenzhen as one example having 16,000 of them. BYD has delivered more than 50,000 electric buses, which is orders of magnitude more than all other non-Chinese companies have built and delivered. BYD provides highly compatible wired and induction charging stations for its buses that just work. By comparison, Proterra, the biggest North American bus provider, has shipped likely under 500 units, mostly in the past few years, and as a result has much less experience with its buses and charging stations. Organizations such as Translink in BC are trying to integrate buses from one vendor set with more generic bus charging technology from other vendors with poor results in their test sites.
There are almost 100,000 buses in California alone which have to go electric over the next 20 years. That’s 200 times Proterra’s entire manufacturing volume experience for its entire life. There are about 700 in the Lower Mainland of British Columbia with another 400 or so in the rest of the province. That’s more than twice Proterra’s history in a single small province of Canada.
New Flyer, North America’s transit bus sales leader, has built and shipped fewer electric buses than Proterra and is having reliability issues in part due to its lack of experience. New Flyer is a Winnipeg, Canada-based company with Winnipeg and US manufacturing facilities so that it can get the built-locally stamp of approval. It’s trying to transition, but it only ships about 6,300 normal drive train buses a year given their longevity. And it hasn’t even given up on the dead hydrogen technology yet. The company could spend the next 15 years building electric buses just for California, leaving the other 49 states and all of Canada out in the cold.
The only country with sufficient scale of bus manufacturing and experience with high-quality bus drive trains and charging is China. Any solution for rapid transformation of bus transit that doesn’t start with that core realization is in trouble. That goes up and down the solution too. All of the major lessons have been learned and leading practices for electrified bus transit systems are from China. Any transit organization planning to transform which hasn’t budgeted for and planned a learning trip to Shenzhen or equivalent Chinese city is going to be challenged by constantly tripping over things that it figured out years ago. Any transit organization expecting New Flyer and Proterra to be able to scale their manufacturing to the level of demand is going to run into major headwinds. It’s a sellers’ market for those two companies, but that means that they’ll be greedy and focused on their best customers and those with the most money or political weight behind them. That’s rational, but that leaves major secondary markets completely out in the cold. The New Flyer test buses in the Lower Mainland will be unaccompanied for a long time after the transformation plans call for complete replacement just due to this major transformation risk.
For others, it’s solar panels and wind turbines. The large majority of solar panels are manufactured in China. The #2 wind turbine manufacturer in the world is Chinese. GE, formerly a good choice for North American wind technology, has been facing increasingly hard times due to its strategic blunder of focusing on its fossil fuel technology lines. Formerly an innovative and a leading wind turbine manufacturer, it’s fallen behind substantially. Thankfully, most solar and wind farm installers are not governmental and have already dealt with this issue. As Joe Biden notes in his climate change plan, China is spending three times what the United States is annually on renewable technologies.
Similarly, in high-speed rail, China dominates again, with 30,000 kilometers of high-speed track in service and plans for another 8,000. That 8,000 is almost as much as Europe has today in its much more fragmented network. If high-speed rail were to take off in the United States in the dense and heavily traveled northeastern or southwestern coastal corridors, they could go to Europe to Alstom or Bombardier’s train division, but the company that’s built and delivered the vast majority of high-speed rail in the world is China’s state-owned CRRC. At minimum, fact-finding missions for lessons learned in China are required, even if Europe feels more accessible.
Even when it’s not China, it’s Asia that dominates. ABB is the leading name in HVDC and other grid components for the rapidly transforming transmission sector, except that now it’s not. Hitachi has acquired ABB’s grid division in a deal worth $6.4 billion. Even then, the leading deployer of HVDC globally is China. When GM wanted to build an all electric car, everything electronic including batteries, power controller, motor, and entertainment system came from Korean company LG. And, of course, half of all electric cars sold in the world are manufactured in China. China and Taiwan have the electric bicycle and rideable segments sewn up as well, with the majority of the market between them for this transforming sector.
There are solutions for this. Agencies comfortable dealing with North American suppliers and lessons learned have to break that mold and set aside time and budget to learn from China especially. Federal governmental trade efforts need to broker deals with Chinese manufacturers to assist the North American transformation. All agencies have to hire or otherwise acquire people skilled in both the Chinese language and in Chinese business processes and customs.
Major buyers in North America have to take a hard look at their suppliers, including companies like New Flyer and Proterra, and where they don’t have major technology and manufacturing partnerships with leading global companies such as BYD, push them to create them.
Major buyers unused to having to deal with sophisticated global supply chain acquisition processes and working them through governmental procurement processes need to acquire assistance with that, and devote time and attention to crafting politically salable procurement strategies that include American and Canadian companies, but are not put at risk by their relatively small scale and lack of experience.
The problems are not insurmountable, but in many cases the problems aren’t even fully identified for agencies which are going to be at the leading edge of the low-carbon transformation. And often, all roads lead to China, a politically challenging country to work with.
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